guidelines on a reasonable standard of living and ... · disclaimer . the insolvency service of...

Guidelines on a reasonable standard of living and reasonable living expenses

DISCLAIMER

The Insolvency Service of Ireland (“ISI”), following consultation with the Minister for Justice and Equality, the Minister for Finance, the Minister for Social Protection and such other persons or bodies as the ISI has considered appropriate has pursuant to section 23 of the Personal Insolvency Act 2012 prepared and is issuing these guidelines as to what constitutes a reasonable standard of living and reasonable living expenses. These guidelines have been prepared and issued by the ISI for the purposes of sections 26, 65(4) and 99(4) of the Personal Insolvency Act 2012 and section 85D of the Bankruptcy Act 1988 (as inserted by section 157 of the Personal Insolvency Act 2012) and for no other purpose. The ISI does not authorise or take any responsibility for the use of these guidelines for any other purpose.

These guidelines are effective from April 2013.

Contents Summary ..................................................................................................................................... 5

1. Legislative requirements ..................................................................................................... 8

2. Reasonable standard of living ............................................................................................. 9

3. Reasonable living expenses ............................................................................................... 10

Determining reasonable living expenses .......................................................................... 14

DRNs .................................................................................................................................. 14

DSAs and PIAs .................................................................................................................... 15

Distinguishing between the DRN and the other new personal insolvency measures ...... 16

4. The approach of the ISI ..................................................................................................... 16

5. The Vincentian Partnership for Social Justice ................................................................... 20

6. What is consensual budgeting? ........................................................................................ 21

7. Transparency, consultation and debate............................................................................ 25

8. Household expenditure allowances .................................................................................. 26

9. Tables of reasonable living expenses ................................................................................ 31

Using the tables ................................................................................................................. 31

Schedule 1: Index of tables ............................................................................................... 36

10. Examples illustrating the application of reasonable living expenses ............................... 45

Example 1 – Ger – DRN ..................................................................................................... 45

Example 2 – Emma – DSA .................................................................................................. 46

Example 3 – Don and Aoife – DRN .................................................................................... 48

Example 4 – Mary and Michael – DRN .............................................................................. 50

Example 5 – Conor – PIA ................................................................................................... 52

11. Appendix A – Section 23 of the Personal Insolvency Act 2012 ......................................... 54

12. Glossary ............................................................................................................................. 55

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Summary

The Insolvency Service of Ireland (“ISI”) was established by the Personal Insolvency Act 2012

(“the Act”). The Act continues the reform of the Bankruptcy Act 1988 and includes the

introduction of an automatic discharge from bankruptcy after three years, subject to certain

conditions. It also introduces three new alternatives to bankruptcy (“new arrangements”),

namely a Debt Relief Notice (“DRN”), a Debt Settlement Arrangement (“DSA”) and a Personal

Insolvency Arrangement (“PIA”).

The ISI believes the new arrangements will play an important part in addressing financial

difficulties currently faced by many insolvent debtors and their creditors by enabling a

resolution of over-indebtedness in an orderly and rational manner without recourse to

bankruptcy.

The ISI is charged with a number of functions under the Act. Section 9 of the Act lists that

one of those functions is to prepare and issue guidelines as to what constitutes a reasonable

standard of living and reasonable living expenses under section 23 of the Act1.

These guidelines are relevant to the assessment of a debtor’s eligibility for a DRN, the

formulation of DSA and PIA proposals and the Court’s making of a bankruptcy payment

order. In particular, they are intended to give direction to Approved Intermediaries (“AIs”)

and guidance to Personal Insolvency Practitioners (“PIPs”) in assessing, for relevant

provisions of the Act, what may be considered ‘reasonable’ in the context of a standard of

living and living expenses. Guidelines on a reasonable standard of living and reasonable

living expenses are essential to the process of moving towards long-term restructuring

measures in that they enable the debt servicing capacity of a distressed debtor to be

calculated in a fair and consistent manner so that the sustainability of repayments can be

established. The guidelines safeguard a minimum standard of living so as to protect debtors

while facilitating creditors in recovering all, or at least a portion, of the debts due to them.

Section 23 of the Act requires the ISI to have regard to certain criteria in preparing guidelines

on a reasonable standard of living and reasonable living expenses. The ISI, in view of these

requirements and following a series of meetings and consultations (listed on page 17), has

decided to use a model (“ISI model”) which is a modified version of the consensual budget

1 The text of Section 23 is reproduced in full as Appendix A to these guidelines.

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standards model originally developed in Ireland by the Vincentian Partnership for Social

Justice (“VPSJ model”)2.

The ISI model allows for food for a nutritionally balanced diet, clothing, personal care, health,

household goods, household services, communications, social inclusion and participation,

education, transport, household energy, childcare, insurance and modest allowances for

savings and contingencies.

Under the ISI model, a ‘reasonable standard of living’ does not mean that a person should

live at a luxury level but neither does it mean that a person should only live at subsistence

level. A debtor should be able to participate in the life of the community, as other citizens

do. It should be possible for the debtor ‘to eat nutritious food …, to have clothes for

different weather and situations, to keep the home clean and tidy, to have furniture and

equipment at home for rest and recreation, to be able to devote some time to leisure

activities, and to read books, newspapers and watch television’3. It follows that ‘reasonable

living expenses’ are the expenses a person will necessarily incur in achieving a reasonable

standard of living which fulfils these criteria.

The use of the ISI model satisfies the requirement contained in section 23 of the Act to have

regard to differences in the size and composition of households. The cost of a child, for

example, varies according to the age of the child and this is taken into account under the ISI

model. So too is the requirement to facilitate the social inclusion of debtors and their

dependants and their active participation in economic activity in the State.

These guidelines set a base level for a reasonable standard of living and reasonable living

expenses. Where either a DSA or a PIA is proposed, the decision on the reasonableness or

otherwise of living expenses will be a matter for the creditors to determine on a case-by-case

basis with the PIP acting to facilitate debtors and creditors in working out an arrangement

acceptable to both.

2 http://www.budgeting.ie/ 3 Nordenankur, ‘More than A Minimum Budget in Sweden’ in ‘Money Matters - Reference Budgets for Social Inclusion’; European Consumer Debt Network (No. 6, 2009) page 8.

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In formulating the ISI model, the ISI liaised with the Central Statistics Office (CSO) and the

Central Bank of Ireland and compared the output of the ISI model to a CSO analysis of the

Household Budget Survey and an analysis by the Central Bank of Ireland of cases in the

Mortgage Arrears Resolution Process. While certain expenditure categories may vary across

the above referenced sources, in aggregate the expenditure levels generated through the ISI

model are not materially different to the CSO or the Central Bank of Ireland analyses.

One of the greatest strengths of using consensual budget standards is the level of

transparency it affords. Each category of expenditure is supported by detailed lists of items

within each category which are individually priced. Different people will naturally have

different opinions on what is meant by reasonable living expenses but the level of

transparency offered by this method should help inform any discussion.

The ISI is required to update these guidelines at intervals of not more than a year under the

Act. These guidelines will be kept under review and the ISI may amend them at any time if

the ISI considers this is warranted.

The current version of these guidelines is publicly available on the website of the ISI at

www.isi.gov.ie.

The ISI welcomes comments on these guidelines by email to [email protected].

https://dl-web.dropbox.com/ISI/Guides/Documents/RLE/www.isi.gov.ie

mailto:[email protected]

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1. Legislative requirements

Section 9 of the Act lists the preparation and issuance of guidelines as to what constitutes a

reasonable standard of living and reasonable living expenses under section 23 of the Act

amongst the principal functions of the ISI.

Section 23 of the Act requires the ISI to hold consultations on these guidelines and specifies

certain factors which are to be taken into account in preparing the guidelines. Section 23(3)

of the Act requires the ISI to have regard to:

a) such measures and indicators of poverty set out in Government policy publications on poverty and social inclusion as the ISI considers appropriate;

b) such official statistics (within the meaning of the Statistics Act 1993) and surveys relating to household income and expenditure published by the Central Statistics Office as the Insolvency Service considers appropriate;

c) the Consumer Price Index (All Items) published by the Central Statistics Office or any equivalent index published from time to time by that Office;

d) such other information as the ISI considers appropriate for the performance of its functions under this section;

e) differences in the size and composition of households, and the differing needs of persons, having regard to matters such as their age, health and whether they have a physical, sensory, mental health or intellectual disability; and

f) the need to facilitate the social inclusion of debtors and their dependants, and their active participation in economic activity in the State.

Section 23(1) of the Act provides that these guidelines are prepared and issued by the ISI for

the purposes of sections 26, 65(4) and 99(4) of the Act and section 85D (as inserted by

section 157 of the Act) of the Bankruptcy Act 1988.

Section 23 of the Act is set out in full in Appendix A.

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2. Reasonable standard of living

The ISI considers that, for the purposes of the Act, a reasonable standard of living is one

which meets a person’s physical, psychological and social needs. Under the ISI model, a

‘reasonable standard of living’ does not mean that a person should live at a luxury level but

neither does it mean that a person should only live at subsistence level. A debtor should be

able to participate in the life of the community, as other citizens do. It should be possible for

the debtor ‘to eat nutritious food …, to have clothes for different weather and situations, to

keep the home clean and tidy, to have furniture and equipment at home for rest and

recreation, to be able to devote some time to leisure activities, and to read books,

newspapers and watch television’4.

It follows that ‘reasonable living expenses’ are the expenses a person will necessarily incur in

achieving a ‘reasonable standard of living’ which fulfils these criteria.

4 Nordenankur, ‘More than A Minimum Budget in Sweden’ in ‘Money Matters - Reference Budgets for Social Inclusion’; European Consumer Debt Network (No. 6, 2009) page 8.

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3. Reasonable living expenses

Under the ISI model, reasonable living expenses are the expenses a person necessarily incurs

in achieving a reasonable standard of living, this being one which meets a person’s physical,

psychological and social needs.

Reasonable living expenses will vary depending on a number of factors such as the particular

composition of a household and the need for a car. Beyond that, when determining

reasonable living expenses, provision needs to be made for reasonable housing costs in

terms of rent or mortgage payments as well as for reasonable payments in respect of

childcare where this expense arises. To use the tables contained in Schedule 1, the Approved

Intermediary (“AI”) or Personal Insolvency Practitioner (“PIP”) should follow a four-step

process shown here in Figure 1 and described below:

Figure 1: Determinants of reasonable living expenses.

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1. Household composition:

The AI or PIP should begin by selecting the set of tables in Schedule 1 which best fits the

situation of the debtor based on household composition i.e. whether or not the applicant has

children and whether he or she is the only adult in the household.

2. Need for a car:

The household will not normally need a car where the applicant lives in an urban location

with adequate public transport links. Where public transport is not adequate to meet the

needs of the household, the AI or PIP should choose the vehicle option based on the needs of

the household (needs, not wants). A car will be required where a debtor needs it to travel to

and from work. Where a car is not included, the ISI model includes costs associated with the

use of public transport.

3. Childcare and housing costs:

a. Childcare costs

A significant expense connected with employment arises where childcare is needed,

particularly at the first two stages of childhood i.e. infancy and pre-school.

Under the ISI model, childcare costs are brought in under ‘other costs’. This means that

reasonable costs incurred for childcare – as with housing costs - are added to the total for set

costs to produce the final figure for reasonable living expenses.

Where childcare is paid for, the reasonableness of this expense should be considered by the

AI or PIP taking into account the hours of childcare needed, the type of childcare (e.g. crèche,

childminder, etc.) and the typical cost of childcare in the debtor’s locality. Proof in the form

of receipts, bank statements or similar may have to be sought where childcare costs appear

excessive. Where applicable, the Early Childhood Care and Education (“ECCE”) Scheme,

which provides a free year of childcare and early education for children of pre-school age,

should be deducted when calculating childcare costs given that each of the new

arrangements continues over a number of years.

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b. Housing costs

As with childcare, housing can also be a significant expense. In considering what constitutes

a reasonable and sustainable accommodation expenditure in an individual case, the AI or PIP

shall have regard to the following matters:

• The costs likely to be incurred by the debtor by remaining in occupation of his or her

current accommodation;

• The ability of other persons residing with the debtor to contribute to the costs of

maintaining the debtor’s current accommodation; and

• The reasonable living accommodation needs of the debtor and his or her dependants

and, having regard to those needs, the cost of alternative accommodation.

In forming an opinion on the reasonable living accommodation needs of the debtor and his

or her dependants the AI or PIP shall take into consideration the size and composition of the

household, and the differing needs of persons having regard to the matters set out in section

23(3)(e) of the Act.

The AI or PIP, in assessing the reasonableness of the existing housing costs of the debtor and

the cost of alternative accommodation, may draw on his or her knowledge of the local

housing market and on such publicly available data sources as he or she considers

appropriate. These sources may include the Central Statistics Office Rental Indices, the

Private Residential Tenancies Board (“PRTB”) databases, the Residential Property Price

Register produced by the Property Services Regulatory Authority (“PSRA”), the quarterly

Daft.ie Rental Reports and leading websites advertising properties for rent or sale. The AI or

PIP should support his or her assessment as to the reasonableness of housing and childcare

costs by reference to the matters he or she has taken into account in arriving at his or her

opinion.

4. Special circumstances:

The Act contains a requirement to take account of the differing needs of persons, having

regard to matters such as their age, health and whether they have a physical, sensory,

mental health or intellectual disability. Given the number of possible variables, and the

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individual nature of physical and mental health conditions and disabilities, the ISI believes

this aspect is best addressed through making allowance in these guidelines for a debtor to

specify reasonable costs which arise as a consequence of ill-health or disability5. The PIP may

request that the debtor provide appropriate documentation in support of extra expenses

related to disability, for example evidence from a professional, such as a doctor or disability

service, to support a claim for allowances in respect of special circumstances6.

The category of special circumstances may also be used where a debtor has persons other

than his or her minor children financially dependent on him or her, such as where the debtor

is contributing financially to the care of an adult dependent such as, for example, an elderly

relative or a college-going child. The PIP may request that the debtor provide

documentation in support of these expenses prior to recognising under this category the

additional costs incurred in such cases.

The output from the above work, based on various household compositions and

circumstances, is to be found in Schedule 1 on page 36.

5 In ‘A Strategy for Equality’: Report of the Commission on the Status of Persons with Disabilities (1996) the Commission identified five areas where the cost of living for people with a disability could be higher than for people without a disability. These are: mobility and communication, medical costs, equipment and assistive technology, care and assistance and general living expenses.

6 In ‘Disability and the Cost of Living’: National Disability Authority (2004) the NDA concluded that while it is not possible to come up with any reliable 'typical' additional cost of living related to disability, the evidence suggests that a significant minority of people with disabilities face additional costs of living related to their disability; that those additional costs of living can vary with the nature of the disability and its complexity or severity; and that while there are schemes of State supports which address some of these areas of need or their costs, some people are either not covered or have their extra needs or extra costs only partly met.

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Determining reasonable living expenses

The ISI has prepared these guidelines to, amongst other things, give direction to AIs and

guidance to PIPs in assessing what may be considered ‘reasonable’ in the context of

reasonable living expenses for certain purposes of the Act. The ISI recognises that

reasonable living expenses will necessarily vary depending on the debtor’s relationship

status, employment status, his or her need for a vehicle, and the number and ages of his or

her children (if any). These factors have been reflected in the tables in Schedule 1 of these

guidelines.

While reasonable living expenses have to be calculated to a mainly objective standard, it is

important that some flexibility be allowed so as to recognise and provide for the differing

needs of persons; particularly in relation to ill-health and disability. This flexibility is

contemplated by the Act in section 23(3)(e).

DRNs

Section 26(2)(b) of the Act provides that to be eligible for a DRN the debtor must have net

disposable income, calculated in accordance with subsection (5), of €60 or less a month. The

Act sets out the basis on which net disposable income is to be calculated. Essentially it is the

income available to the debtor less specified deductions, as shown below:

INCOME

-

EXPENDITURE

= NET DISPOSABLE

INCOME

• Salary or wages • Welfare benefits (other

than child benefit) • Pension income • Contributions from other

household members • Any other income

• Reasonable living expenses

• Income tax payable • Social insurance

contributions • Payments of excluded

debts • Payments of excludable

debts that are not permitted debts

• Such other levies and charges on the debtor’s income as may be prescribed

Figure 2: Calculation of net disposable income.

All of these income and expenditure items, other than reasonable living expenses, are a

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matter of fact. What is ‘reasonable’ is an objective standard, but one open to interpretation.

As contemplated by section 23(3)(e) of the Act , it may vary from one person to another but

it is fundamental to achieving fairness and consistency in evaluating eligibility for DRNs that

reasonable living expenses be as objective as possible. It would clearly be wrong to penalise

the frugal by making it easier for a debtor to pass the test for net disposable income simply

by spending more of his or her money on anything he or she considers reasonable.

DSAs and PIAs

Section 65(2)(d) of the Act provides that a DSA shall not contain any terms which would

require the debtor to make payments of such an amount that the debtor would not have

sufficient income to maintain a reasonable standard of living for himself or herself and his or

her dependants. Section 65(4) of the Act specifies that, in determining whether a debtor

would have a sufficient income to maintain a reasonable standard of living for the debtor

and his or her dependants, regard shall be had to these guidelines. Section 99(2)(e) and

section 99(4) of the Act contain corresponding provisions in respect of a PIA.

It is important that individuals in financial difficulty, who are also in employment, be given

some incentive to continue working. A reduction to the income level which that individual

would have if he or she were to be unemployed and in receipt of social welfare could take

away the incentive to go to work. In the context of working debtors entering into DSAs and

PIAs, such individuals should be able to retain some of the money they are earning before

the balance of their income goes to discharge their debt.

There will be a need for PIPs to engage with creditors and debtors in order to ensure that

workable arrangements are put in place. Creditors have an interest in getting all, or at least a

portion, of their debts repaid and so have an interest in the debtor being at work, getting a

financial benefit from working and thereby having the ability to pay off a greater amount of

his or her debts over a period of time, than might otherwise be the case if they were not at

work.

A balance will have to be struck between the allocation of earnings to creditors and their

retention by the debtor. This will vary from individual to individual, depending on personal

circumstances, family situation, debt levels, income, health and a range of other issues.

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DRN DEBT RELIEF NOTICE

DSA DEBT SETTLEMENT

ARRANGEMENT PIA

PERSONAL INSOLVENCY

ARRANGEMENT

Ultimately, where either a DSA or a PIA is proposed, the decision on the reasonableness or

otherwise of living expenses will be a matter for the creditors to determine on a case-by-case

basis in accordance with the voting thresholds set out in section 73 or, as applicable, section

110 of the Act. This is subject to the provision that the debtor will not be required to make

payments of such an amount that he or she would not have sufficient income to maintain a

reasonable standard of living. Where a PIP has put forward a proposal which contains

unrealistic or disproportionate living expenses there is a likelihood that creditors will vote

against acceptance of the arrangement on that basis.

Distinguishing between the DRN and the other new personal insolvency measures

Figure 3: Differences between a DRN and the other new insolvency measures

4. The approach of the ISI

In developing these guidelines, in addition to those persons the Act required the ISI to

consult, the ISI consulted with a number of additional persons or bodies which the ISI

Strict application of the reasonable living expenses model in determining the eligibility of an applicant.

Ultimately, it is a matter for the Personal Insolvency Practitioner to determine an acceptable level of reasonable living expenses and for creditors to agree on this and vote in favour of it.

To be eligible the applicant must have €60 or less in net disposable income a month.

The Act requires that the debtor have sufficient income to maintain a reasonable standard of living. Accordingly, reasonable living expenses should not be at a level below that proposed under these guidelines.

Actual expenditure would not give reasonable results. An objective standard must be set.

Reasonable living standards may be higher than these guidelines propose where acceptable to creditors. This may occur where creditors can see value for themselves in incentivising the debtor.

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considered appropriate to consult. These included the Money Advice and Budgeting Service,

the Free Legal Advice Centres, the Vincentian Partnership for Social Justice, the Central

Statistics Office, the Economic and Social Research Institute, the Official Assignee in

Bankruptcy, representatives from the financial services sector, the Central Bank of Ireland

and the Citizens Information Board.

The ISI also consulted with the Minister for Social Protection, the Minister for Finance and

the Minister for Justice and Equality as required by the Act.

Following these consultations, and bearing in mind the requirements under the Act, the ISI

has decided to use as its model (“ISI model”) a modified version of the consensual budgeting

model (“VPSJ model”) originally developed in Ireland by the

Vincentian Partnership for Social Justice (“VPSJ”)7. These

guidelines have been prepared and issued by the ISI for the

purposes of sections 26, 65(4) and 99(4) of the Personal

Insolvency Act 2012 and section 85D of the Bankruptcy Act 1988

(as inserted by section 157 of the Personal Insolvency Act 2012)

and for no other purpose.

The work of the VPSJ was noted by the Law Reform Commission

in a December 2010 report on Personal Debt Management and

Debt Enforcement8 as a possible basis for guidelines on

reasonable living standards.

The logic behind the figures is in line with a 2008 study9

conducted by the European Commission which, in seeking to establish a single European

definition of over-indebtedness, considered that regard had to be paid to the standard of

living of the household. For a household to be classed as over-indebted, the Commission

believed that it must be unable to meet its contractual commitments without reducing its

7 More information on the work of VPSJ is available at http://www.budgeting.ie/. 8 Personal Debt Management and Debt Enforcement, Law Reform Commission, (LRC 100 - 2010) page 129. 9 Towards A Common Operational European Definition of Over-Indebtedness (European Commission,

Directorate-General for Employment, Social Affairs and Equal Opportunities 2008).

Under the consensual budgeting model, a minimum essential standard of living is one which meets a person’s physical, psychological and social needs.

It is a standard of living that is based on needs, not wants, but it is more than survival and allows for meaningful participation in society. It should not be regarded as a standard of living for people in poverty.

http://www.budgeting.ie/

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minimum standard of living. The Commission elaborated on this point in 201010 in defining

an over-indebted household as one:

‘whose existing and foreseeable resources are insufficient to meet its financial

commitments without lowering its living standards, which has both social and policy

implications if this means reducing them below what is regarded as the minimum

acceptable in the country concerned’.

There is also a requirement under the Act at section 23(3)(e) to take account of the differing

needs of persons, having regard to matters such as their age, health and whether they have a

physical, sensory, mental health or intellectual disability. Taking into account the number of

possible variables, and the very individual nature of physical and mental conditions and

disabilities, the ISI believes this aspect is best addressed by

permitting a debtor to specify reasonable costs over and above a

typical household which are necessarily incurred for these

reasons.

The ISI did consider some items of expenditure included in the

VPSJ model not to be appropriate in the context of personal

insolvency. The ISI has adapted the VPSJ model to exclude

private medical insurance, holiday costs, having more than one

car and payment of discretionary items (such as voluntary

donations). The ISI model is predicated on needs rather than

wants and private health insurance should normally be excluded

on the basis that it is not a necessity. Notwithstanding this general rule, some situations may

arise where it is reasonable for a pre-existing private health insurance policy to be kept in

place.

Examples of such situations include where the employer of an applicant pays the premium or

where the applicant or a dependent has a health condition which would otherwise result in a

higher expenditure on health as compared to the insurance premium. It might also be

proposed to retain a policy where an existing medical condition would make it difficult or

impossible to regain insurance cover in the future or where an individual is of an age such

that it is reasonable for a private health insurance policy to be maintained. In such

circumstances the AI or PIP may consider continuance of private health insurance as an

10 Over-indebtedness - New evidence from the EU-SILC special module (European Commission, Research note

4/2010) page 4.

The ISI considers that, for the purposes of the Personal Insolvency Act 2012, a reasonable standard of living is one which meets a person’s physical, psychological and social needs and reasonable living expenses are expenses necessarily incurred in achieving this standard of living.

19

exceptional item and should include an explanatory note to that effect in the relevant

section of the application form.

Expenditures on electricity and home heating under the VPSJ model are based on a specific

standard of housing and the ISI required these costs to be more broadly applicable. The ISI

has therefore opted to use average expenditures on electricity and home heating from the

Household Budget Survey for the ISI model.

In addition, the ISI has adjusted the original model to reflect the fact that child benefit

payments are, under section 26(5)(b)(ii) of the Act, not to be included in assessing income for

the purposes of determining eligibility for a DRN. On the basis that child benefit payments

are intended to be spent on a child, child benefit has been deducted from the reasonable

living expenses of a child. To do otherwise would effectively mean double counting child

benefit in the ISI model. Also, the capital cost of a car, set at a value of €5,950-€8,500 in the

original consensual budget standards model, has been reduced to €2,000.

In choosing this model, the ISI liaised with the Central Statistics Office and the Central Bank

of Ireland and compared the output of this model to a CSO analysis of the Household Budget

Survey conducted in February 2013 and an analysis by the Central Bank of Ireland of cases in

the Mortgage Arrears Resolution Process conducted in January 2013. While certain

expenditure categories may vary across the above referenced sources, in aggregate the

expenditure levels generated through the ISI model are not materially different to the CSO or

the Central Bank analyses.

The reasonable standard of living and reasonable living expenses set out in these guidelines

have been developed by the ISI in accordance with its statutory functions under the Act. The

figures used in these guidelines have unique application to personal insolvency and are not

intended to be used for purposes other than the stated purposes of these guidelines under

the Act.

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5. The Vincentian Partnership for Social Justice

The Vincentian Partnership for Social Justice (“VPSJ”) was established in 1996 to work for

social and economic change by tackling poverty and social exclusion; it is made up of the

Society of St Vincent de Paul, the Vincentian Congregation, the Daughters of Charity, and the

Sisters of the Holy Faith.

As part of this work, the VPSJ has conducted research in Ireland for over 12 years so as to

develop necessary expenditure figures for different types of households.

In brief, these household expenditure figures are arrived at through a process of consensual

budgeting using focus groups with experts being involved where needed (such as

nutritionists for the food elements of the budgets). The approach adopted is that the

standard be set at a minimum but acceptable level.

The approach of the VPSJ goes a long way to addressing the requirements set out in section

23 of the Act. The minimum but acceptable standard which emerges from their consensual

budgeting work means that the requirement to avoid impoverishing insolvent debtors and to

facilitate both their social inclusion and economic participation is already built in.

Differences in the size and composition of households are accommodated in respect of

dependent children under the VPSJ research which takes account of the way in which the

cost of a child varies depending on the age and lifestage of the child. Categorising children

into infant, pre-school, primary school level or secondary school level enables a more

accurate assessment to be made of the reasonable living expenses of a household.

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6. What is consensual budgeting?

Ernst Engel, the German statistician and economist, is credited with the development of a

consensual budget standards approach in the mid 19th century11 though it was Seebohm

Rowntree who developed and popularised it in the English speaking world through his

studies on poverty in York12.

The consensual budget standards model is a form of reference budget13 based on a detailed

budget approach using focus groups. Reference budgets, by definition, refer to something,

such as a consensus arrived at by focus groups or they may refer to average consumer

expenditure. The ISI considered both of these approaches to

see which would be more applicable to personal insolvency in

Ireland and determined that consensual budget standards best

satisfied the requirements of the Act.

The VPSJ consensual budget standards model is an adaptation

of the Low Cost but Acceptable standard of living constructed by

the Family Budget Unit of the University of York and draws also

on the work of the Centre for Research and Social Policy at the

University of Loughborough14.

How this works in practice is that panels of ordinary people in

each household type compile lists of budget items necessary for

a family to achieve a minimum acceptable standard of living. In

a series of sessions, members of the focus groups separately

arrive at a negotiated consensus about the goods and services a household requires in order

to have a minimum standard of living. Experts are consulted so as to ensure that the

negotiated consensus meets basic criteria such as, for example, nutritional standards.

11 Parker, H.: Low Cost but Acceptable: A Minimum Income Standard for the UK: Families with Young Children (Policy Press, 1998). 12 Rowntree B.S., Poverty: A Study of Town Life (MacMillan & Co., 1901). 13 Reference budgets are also sometimes known as ‘budget standards’, ‘standard budgets’ or ‘example budgets’. 14 Further information on the methodology used is available online at http://www.budgeting.ie/.

The Vincentian Partnership for Social Justice has developed a consensual budget standards model for Ireland. This model allows for food for a nutritionally balanced diet, clothing, personal care, health, household goods, household services, communications, social inclusion and participation, education, transport, housing energy, personal costs, childcare, insurance and modest allowances for savings and contingencies.

http://en.wikipedia.org/wiki/Germany

http://en.wikipedia.org/wiki/Statistician

http://en.wikipedia.org/wiki/Economist

http://www.budgeting.ie/index.php?option=com_content&view=article&id=32&Itemid=100007

22

Each focus group consists of between 8 and 12 people from a mixture of social and economic

backgrounds, and represents the household under consideration e.g. focus groups of parents

with children determine the minimum requirements of such households. In order to ensure

reliability and validity three different focus groups are

separately established for each household type.

Each focus group acts as their own budget standard committee

where ‘the actual expenditure choices and judgements that

are made by people in real life on the ground, as they manage

their money contributes to the final consensus’15 on minimum

essential living standard requirements. Experts are consulted

when necessary (e.g. nutritionists and energy experts). There

are four phases in the focus group stage of the consensual

budget standards process16:

Figure 4: The four phases in the focus group stage.

1. Orientation Phase:

The initial phase explores the language, concepts and priorities that people use in thinking

about spending and consumption. During this phase the group develops a working definition

of a minimum essential standard of living and identifies the difference between needs and

wants.

15 (Middleton, 2000: 62-3). 16 For a more detailed description of Consensual Budget Standards see Middleton, S. (2000) and Bradshaw et al., (2008).

This consensual budgeting model addresses the dual questions of:

1. What is a reasonable standard of living in Ireland today?

and

2. How much expenditure must a household necessarily incur to achieve this standard?

23

2. Task Groups:

In this phase, each budget component is considered in turn (i.e. food, clothing, personal care,

household goods, household services, social inclusion, fuel, transport etc). Each item is then

categorised as essential, desirable or luxury. Together, the participants produce an agreed

list of essential items.

Two groups are involved at this phase. The second task group examines the consensus of the

first task group and makes any necessary changes by adding to or subtracting from the list of

the first group.

3. Costing Phase:

The items agreed by the focus group are costed by the researchers to compile a minimum

essential budget. Up to two thousand individual items are priced.

4. Checkback Phase:

The final phase involves the rechecking of items and costs in order to reach a final consensus.

Firstly, participants are asked whether they think the amount allocated to provide the agreed

list of items is too high or too low. Secondly, the group is asked how much they would be

prepared to reduce the budget.

Where appropriate, these lists are checked by experts (e.g. nutritionists), and where there

are difficulties (with nutritional standards, for example), these are reported to subsequent

groups who are able to amend the budgets if necessary. The budgets include both material

possessions and the cost of activities and services required for social participation.

24

Focus groups have put a strong emphasis on ensuring that families do not just have basics

like food and shelter, but also can afford a minimum of social participation that is necessary

to have an acceptable living standard17.

The VPSJ has observed that focus groups have been very clear in their view that a minimum

standard of living is neither a survival standard nor a standard for people in poverty; rather it

is a standard of living that should allow for people to engage in activities that are considered

the norm for Irish society.

This approach to a reasonable standard of living corresponds to that set out in section

23(3)(f) of the Act which requires the social inclusion of debtors and their dependents and

their active participation in economic activity in the State to be facilitated.

17 This experience is not confined to Ireland. A similar finding is reported from research done in the Netherlands in which focus groups were described as ‘consistent in that they all explicitly set aside an amount for social participation. Under this we include hobbies and sports for both adults and children, holidays, going out, going visiting (including giving gifts) and receiving visitors (including celebrating birthdays)’. ‘The Minimum Agreed Upon - Consensual budget standards for the Netherlands’, The Netherlands Institute for Social Research and the National Institute for Family Finance Information, (Utrecht, 2010) at page 148.

25

7. Transparency, consultation and debate

The use of the consensual budgeting method brings with it a high degree of transparency.

Every item of expenditure has been listed and costed. Professor Jonathan Bradshaw of the

University of York in a foreword to the initial 2004 Irish research observed that ‘all budget

standards are derived using a combination of science and normative judgement’ and that

inevitably ‘there will be arguments about the Vincentian Irish budget standards’18.

Discussion and debate on the question of what constitutes reasonable living expenses is to

be welcomed and it should be borne in mind that changes can be made to these guidelines

from time to time by the ISI where sound reasons exist to support such changes.

The ISI is committed under section 23(6) of the Act to issuing guidelines at least every year

and under section 23(5) to making them available to the public on its website. The

guidelines may be revised from time to time to take account of new issues and new

circumstances that arise as experience of operating the Act develops.

18 Bradshaw in ‘Low Cost but Acceptable Budgets for Three Households’, VPSJ (2004) at page 11.

http://www.budgeting.ie/images/stories/Publications/Low%20Cost%20but%20Acceptable%20Budgets%20for%20Three%20Housholds.pdf.

26

8. Household expenditure allowances

The focus groups (discussed earlier on pages 22-23) reach a consensus view on the

reasonable needs of particular household types.

Once these reasonable needs are established, each item is then costed to derive a figure

representing reasonable living expenses. The headline figure for reasonable living expenses

is made up of 15 main categories, namely;

1. Food

2. Clothing

3. Personal Care

4. Health

5. Household Goods

6. Household Services

7. Communications

8. Education

9. Transport

10. Household Energy

11. Insurance

12. Savings and Contingencies

13. Social Inclusion and Participation

14. Housing

15. Childcare

Figure 5: The main categories of expenditures.

27

As a general principle, the ISI wishes to see debtors retaining the autonomy to make their

own choices as to what is best for them, though necessarily within the constraints of

reasonableness and the overall expenditure limits. Thus, while the focus groups have

decided that cable or satellite television subscriptions are not necessary and that allowance

for a SAORVIEW approved set-top-box or television is sufficient, a debtor may choose to

retain such a subscription by prioritising it within his or her budget.

So long as an applicant for one of the three new personal insolvency processes under the Act

comes within the overall headline figure for reasonable living expenses, the ISI will not be

prescriptive in terms of what the applicant can or cannot spend their money on.

Only where an applicant spends in excess of what is considered to be reasonable under these

guidelines will it become necessary for the AI or PIP to look at his or her spending across the

categories of expenditure.

Figure 6 on pages 29-30 sets out the main categories of expenditure and gives a short

overview of the types of goods and services contained within each category of expenditure.

As outlined earlier, the ISI has modified some of the categories by eliminating some specific

expenditure items on the basis that they were unsuitable in the context of personal

insolvency19.

The ISI has reconfigured the weekly figures to present them on a monthly basis. This was

done to achieve consistency with the requirement contained in section 26(2)(b) of the Act

that the net disposable income of a debtor must amount to €60 or less a month in order to

be eligible to apply for a DRN.

Housing costs have been kept out of the expenditure categories within the ISI model of

reasonable living expenses. Given the number and variety of housing situations possible, the

ISI considers this item is best treated by including the actual accommodation costs of an

applicant where these are reasonable. Under the provisions for either a DSA or a PIA, a PIP is

to have regard to the costs likely to be incurred by the debtor by remaining in occupation of

his or her principal private residence. Where the PIP forms the opinion that the costs of

continuing to reside in the debtor’s principal private residence are disproportionately large

19 The full content of the expenditures categories included by the focus groups in the consensual budgets can be found on the website www.budgeting.ie.

http://www.budgeting.ie/

28

he or she will not be required to formulate a proposal on the basis of the debtor continuing

to occupy the property.

An applicant seeking a DRN will generally not be the owner of the property in which he or

she is living given the eligibility requirement that the assets of an applicant, including real

property, must be worth no more than €400.

Regardless of whether the debtor owns or rents their principal private residence, the same

principle should apply that he or she should only have to consider surrendering the property

where the costs of continuing to reside in it are disproportionately large as may occur, for

example, where the size of the property exceeds the needs of the debtor and his or her

dependants. The ISI considers it appropriate at this time to avoid being overly prescriptive in

setting out reasonable housing costs choosing instead to specify matters to which a PIP or an

AI should have regard in determining the reasonableness of the housing costs of a debtor.

Childcare costs are also subject to variance depending on how much childcare is required and

who is providing the childcare. Accordingly, childcare costs, like housing costs, have not

been included in the set costs. The reasonable cost of childcare will rather be added to the

set costs. These guidelines contain guidance to AIs and PIPs on factors to consider in

assessing the reasonableness of childcare costs.

29

Expenditure category

A guide to what is included in each expenditure category.

For a single adult of working age living alone this comes to a monthly total of:

For a single adult of working age living alone this comes to an annual total of:

Food The expenditure on food is based on a balanced, nutritious diet. The consensual budget standards model is premised on a healthy lifestyle.

€247.04 €2,964.48

Clothing Clothing and footwear for all seasons, including accessories. €35.73 €428.76

Personal Care Personal hygiene and grooming items. €33.40 €400.80

Health Medications, and visits to a General Practitioner, Optician, Dentist, etc. It also includes small items such as plasters, antiseptic, and over-the-counter medicines.

€31.09 €373.08

Household Goods Furniture, appliances, cleaning products, etc. Single adults of working age living in an urban area are assumed to be living in a rented furnished studio apartment.

€31.47 €377.64

Household Services

Vital household related services such as waste charges, getting an annual boiler service, and having chimneys swept.

€28.61 €343.32

Communications Telephone, postage and basic internet; an internet dongle/wireless connection at €4.69 per week and phone credit at €5.00 per week.

€43.45 €521.40

Education The minimum education needs of a household as decided by the focus groups. This category includes uniforms, books, and stationery where applicable and also adult education.

€24.50 €294.00

30

Transport The cost of a car is allowed where public transport is inadequate to get to work, school and the local shop.

€136.29 for public transport costs or €240.13 if a car is necessary

€1,635.48 for public transport costs or €2,881.56 if a car is necessary

Household Energy Electricity and home heating fuel. Electricity and heating costs come from the CSO Household Budget Survey.

€48.87 electricity

€57.31 heating

€586.44 electricity

€687.72 heating

Insurance Home insurance and also car insurance where a car is needed. Note that the ISI model does not ordinarily include private health insurance though this may be included in some circumstances where warranted.

€12.22 home contents

€25.91 car insurance where applicable

€146.64 home contents

€310.92 car insurance where applicable

Savings and Contingencies

Savings and life assurance (for households with dependents). For a single person, savings at €5 a week are assumed as is €5 a week to be put aside for contingencies and emergencies20.

€43.33 €519.96

Social Inclusion and Participation

At €28.97 a week, the minimum considered necessary for participation and inclusion. It includes sports activities and social events such as visits to the cinema. The ISI model does not factor in the cost of a holiday.

€125.97 €1,511.64

Housing The cost of renting or making mortgage payments.

Variable – subject to PIP or AI assessing cost to be reasonable


Childcare The cost of full or part-time childcare. This is dependent on the employment status of the adults in the household as well as the age of the child.

Variable – subject to PIP or AI assessing cost to be reasonable.to be reasonable


Figure 6: The main categories of expenditure with a description of each

20 In the alternative any relatively small but unforeseen event might well cause the failure of an insolvency arrangement since a person in an insolvency arrangement will likely have only limited access to credit. This savings allowance may also assist in preventing people on low incomes being cut off from sources of regulated credit.

31

9. Tables of reasonable living expenses

Using the tables

The costs attributed to a typical household in these guidelines are termed ‘set costs’. To

these are added the reasonable costs of housing, childcare and special circumstances where

these arise. This produces the total for reasonable living expenses for the household.

Where only one adult resides in the household, the reasonable living expenses for that adult

and any dependents will be fully attributed to that adult.

Where two adults reside in the household then it will be presumed that the reasonable living

expenses of the household are split equally between them, though a debtor may rebut this

presumption and produce evidence to show that he or she pays a different proportion of

these reasonable living expenses.

Where adults reside together in a house-sharing arrangement, the reasonable living

expenses of the debtor should be based on those of a single person. In such cases, the AI or

PIP should assess the reasonableness of the rent based on the portion which the debtor pays

rather than the rent of the property.

Step 1: Set costs – household composition

The AI or PIP should begin by selecting the set of tables which best fits the situation of the

applicant based on household composition i.e. whether or not the applicant is the only adult

in the household and whether or not the applicant has children. The set costs of a household

are compiled by totalling the costs for each individual in the household. For households with

children, the AI or PIP should first identify the costs for the adult(s). To this is then added the

cost for the first child. These should correspond to the age group of that child. This step is

repeated for each subsequent child. Where there are three or more children in the

household, an adjustment will need to be made to capture the additional costs associated

with the larger households. These tables enable the calculation of the minimum set costs for

single adult households, for households with couples and no children, and for two-parent

and one-parent households with one or more children.

32

Step 2: Set costs – need for a motor vehicle

If the household does not have a motor vehicle and does not need a motor vehicle this will

usually mean the applicant lives in an urban location with adequate public transport links.

The AI or PIP should choose the vehicle option based on the needs of the household (needs,

not wants). Where a car or motor vehicle is not included, the model includes costs

associated with the use of public transport.

Step 3: Reasonable costs of housing and childcare

Under the ISI model, childcare costs and housing costs are added to the total for set costs to

produce the final figure for reasonable living expenses.

Where childcare or housing costs are paid for, the AI or PIP should assess the reasonableness

of these expenses taking into account the factors outlined earlier under the heading

‘Childcare and housing costs’ on pages 11-12 of these guidelines. The AI or PIP should

support his or her assessment as to the reasonableness of childcare and housing costs by

reference to the matters he or she has taken into account in arriving at this opinion.

Step 4: Special circumstances

The Act contains a requirement to take account of the differing needs of persons, having

regard to matters such as their age, health and whether they have a physical, sensory,

mental health or intellectual disability. Given the number of possible variables, and the

individual nature of physical and mental health conditions and disabilities, the ISI believes

this aspect is best addressed through making allowance in these guidelines for a debtor to

specify reasonable costs which arise as a consequence of ill-health, age or disability.

The category of special circumstances may also be used where a debtor has persons other

than his or her minor children financially dependent on him or her, such as where the debtor

is contributing financially to the care of an adult dependent such as, for example, an elderly

relative or a college-going child.

Two illustrations follow to show how set costs are combined to compile household costs for

33

a debtor and his or her dependents.

Illustration 1: Household – One adult, two children aged 3 and 10 years

old, and a private car needed

The cost for the adult, highlighted in blue below, is taken from table 4 on page 40 which

shows reasonable living expenses for a single-parent family which has a car. To this is added

the appropriate child costs, here highlighted in orange; in this case the Pre-School and

Primary School age groups are selected.

ONE ADULT HOUS E HOLD P RIVATE CAR NE E DE DMar 2013

MONTHLY Adult Infant P re-S chool P rimary S econdary Third Child F ourth Child

Tota l before deductions € 1,066.75 € 372.49 € 194.99 € 334.88 € 547.40 € 9.83 € 52.23

LE S S child benefit € 0.00 -€ 130.00 -€ 130.00 -€ 130.00 -€ 130.00 € 0.00 -€ 10.00

Tota l set cos ts € 1,066.75 € 242.49 € 64.99 € 204.88 € 417.40 € 9.83 € 42.23

OTHER COSTSChildca reHous ingS pecia l circumstances

Reasonable Living Expenses

Child Age Groups A djus tment if more than two children

To arrive at the total set costs for this household, the AI or PIP will take the total set costs for

the adult (circled in blue) which are €1,066.75. To this is added the total set costs for one

Pre-School child which are €64.99 and one Primary School child which are €204.88 (circled in

orange). Total set costs for this household are €1,336.62 a month. Since this household has

fewer than three children no adjustment for additional costs is necessary.

Illustration 2: Household – Two-parents, four children aged 3, 5, 10 and

14 years old, and no private car needed

The relevant table is table 5 on page 41. To the set costs for the couple, circled in blue, are

added the appropriate child costs, circled in orange. In this case the Pre-School, Primary

School (twice for the two primary age children) and Secondary School age groups are

selected.

34

TWO ADULT HOUS E HOLD NO CAR NE E DE DMar 2013

MONTHLY Couple Infant P re-S chool P rimary S econdary Third C hild F ourth C hild

Tota l before deductions € 1,305.77 € 372.49 € 176.09 € 307.13 € 509.74 € 9.83 € 9.27LE S S child benefit € 0.00 -€ 130.00 -€ 130.00 -€ 130.00 -€ 130.00 € 0.00 -€ 10.00Total set costs € 1,305.77 € 242.49 € 46.09 € 177.13 € 379.74 € 9.83 -€ 0.73




As the household has four children an adjustment is made to reflect the additional costs

associated with a third and fourth child. In this example both are included, circled in green.

Working through this example, the AI or PIP will add the figure of €1,305.77 in respect of the

two adults, €46.09 in respect of the Pre-School child, €354.26 in respect of the two Primary

School children (€177.13 multiplied by two) and €379.74 in respect of the Secondary School

child. An adjustment is then made to reflect the additional costs associated with having

more than two children – in this example it is €9.10 (€9.83 plus -€0.73). The total set costs

are €2,094.96.

Note in relation to Child Age Groups

For the purposes of these guidelines, infant means a child between the ages of 0-2 years old

inclusive, preschool means a child three years of age, primary school means a child between

the ages of 4-11 years old inclusive and secondary school means a child between the ages of

12-18 years old inclusive.

Note in relation to Child Benefit

Child Benefit is deducted from the set costs for each child. Child Benefit is paid at the same

rate for the first three children in a household and the rate increases for the fourth child. This

increase is accounted for by a further Child Benefit deduction in the fourth child column of

the tables.

Child benefit payments are, under section 26(5)(b)(ii) of the Act, not to be included in

assessing income for the purposes of determining eligibility for a DRN. On the basis that

child benefit payments are intended to be spent on a child, child benefit has been deducted

from the reasonable living expenses of a child. To do otherwise would effectively mean

X2

35

double counting child benefit in the ISI model.

Note on category totals –v– overall total set costs

So long as a debtor comes within the overall headline figure for reasonable living expenses,

the ISI will not be prescriptive in terms of what the applicant may or may not spend their

money on.

Applying this principle, regard should be paid to the overall total of what is termed in these

guidelines ‘total set costs’ expenditures rather than to each of the expenditure categories

making up this total.

The overall total set costs is allowed as a minimum for reasonable living expenses without

any need to ensure that an individual applicant confines his or her spending to the total for

each category.

The category totals in the tables are provided for information and in the interests of

transparency. An AI or PIP may also find them of help in discovering areas of overspend

where a debtor’s actual expenditure is found to exceed the figure for total set costs.

36

Schedule 1: Index of tables

Table 1. One adult household, no vehicle

Table 2. One adult household, vehicle

Table 3. One adult household, one or more children, no vehicle

Table 4. One adult household, one or more children, vehicle

Table 5. Two adult household, one or more children, no vehicle

Table 6. Two adult household, one or more children, vehicle

Table 7. Two adult household, no vehicle

Table 8. Two adult household, vehicle

Some practical examples follow the tables which should help to show how the level for

reasonable living expenses is determined and how it is then used in calculating monthly net

disposable income.

37

Tables of Reasonable Living Expenses

Table 1. One adult household, no vehicle

S INGLE ADULT, WORKING AGE (LIVING ALONE )

Mar 2013

MONTHLY

Tota l s et cos ts € 900.08

OTHER COSTS

Hous ingS pecia l c ircums tances


NO CAR NE E DE D

Table 1 One adult household, no vehicle

SET COST BREAKDOWN - FOR INFORMATIONAL PURPOSES ONLY:

F ood € 247.04

Clothing € 35.73

P ersona l Care € 33.40

Hea lth € 31.09

Household Goods € 31.47

Household S ervices € 28.61

Communica tions € 43.45

S ocia l Inclus ion & P a rticipa tion € 125.97

E duca tion € 24.50

Transport (P ublic) € 136.29

Household E lectricity € 48.87

Home Hea ting € 57.31

P ersona l Cos ts € 0.79

Home Insurance € 12.22

Car Insurance € 0.00

S aving s & Contingencies € 43.33

Total monthly set costs 900.08€

38

Table 2. One adult household, vehicle

Table 2 One adult household, vehicle


F ood € 247.04

Clothing € 35.73

P ers ona l Care € 33.40

Hea lth € 31.09

Hous ehold Goods € 31.47

Hous ehold S ervices € 28.61

Communications € 43.45

S ocia l Inc lus ion & P artic ipation € 125.97

E ducation € 24.50

Trans port (P riva te) € 240.13

Hous ehold E lectric ity € 48.87

Home Heating € 57.31

P ers ona l Cos ts € 0.79

Home Ins urance € 12.22

Car Ins urance € 25.91

S avings & Contingencies € 43.33

Total monthly set costs 1,029.83€

39

Table 3. One adult household, one or more children, no vehicle

ONE ADULT HOUS E HOLD NO CAR NE E DE DMar 2013

MONTHLY Adult Infant P re-S chool P rimary S econdary Third C hild F ourth C hild

Tota l before deductions € 898.96 € 372.49 € 207.41 € 347.30 € 559.82 € 9.83 € 9.27


Total set costs € 898.96 € 242.49 € 77.41 € 217.30 € 429.82 € 9.83 -€ 0.73




Table 3 One adult household, one or more children, no vehicle


Adult Infant P re-S chool P rimary S econdaryF ood € 219.00 € 133.30 € 103.46 € 159.87 € 212.50Clothing € 35.72 € 72.79 € 22.10 € 30.23 € 55.05P ersona l Care € 31.71 € 46.98 € 6.16 € 11.86 € 36.80Hea lth € 28.97 € 35.69 € 18.70 € 18.45 € 24.30Household Goods € 64.50 € 47.69 € 12.18 € 13.62 € 16.59Household S ervices € 29.25 € 0.00 € 0.00 € 0.00 € 0.00Communica tions € 43.32 € 0.00 € 0.00 € 0.00 € 21.67S ocia l Inclus ion & P a rticipa tion € 99.21 € 7.72 € 10.03 € 49.53 € 93.23E duca tion € 11.93 € 0.00 € 0.00 € 28.97 € 64.90Transport (P ublic) € 112.98 € 0.00 € 12.42 € 12.42 € 12.42Household E lectricity € 69.68 € 5.80 € 0.00 € 0.00 € 0.00Home Hea ting € 74.02 € 0.00 € 0.00 € 0.00 € 0.00P ersona l Cos ts € 0.78 € 0.86 € 0.69 € 0.69 € 0.69Home Insurance € 18.38 € 0.00 € 0.00 € 0.00 € 0.00Car Insurance € 0.00 € 0.00 € 0.00 € 0.00 € 0.00S aving s & Contingencies € 59.52 € 21.67 € 21.67 € 21.67 € 21.67Tota l before deductions € 898.96 € 372.49 € 207.41 € 347.30 € 559.82LE S S child benefit € 0.00 -€ 130.00 -€ 130.00 -€ 130.00 -€ 130.00

Total monthly set costs 898.96€ 242.49€ 77.41€ 217.30€ 429.82€

Child Age Groups

40

Table 4. One adult household, one or more children, vehicle

ONE ADULT HOUS E HOLD P RIVATE CAR NE E DE DMar 2013

MONTHLY Adult Infant P re-S chool P rimary S econdary Third Child F ourth Child



Tota l set cos ts € 1,066.75 € 242.49 € 64.99 € 204.88 € 417.40 € 9.83 € 42.23




Table 4 One adult household, one or more children, vehicle


Adult Infant P re-S chool P rimary S econdaryF ood € 219.00 € 133.30 € 103.46 € 159.87 € 212.50

Clothing € 35.72 € 72.79 € 22.10 € 30.23 € 55.05

P ersona l Care € 31.71 € 46.98 € 6.16 € 11.86 € 36.80

Hea lth € 28.97 € 35.69 € 18.70 € 18.45 € 24.30

Household Goods € 64.50 € 47.69 € 12.18 € 13.62 € 16.59

Household S ervices € 29.25 € 0.00 € 0.00 € 0.00 € 0.00

Communica tions € 43.32 € 0.00 € 0.00 € 0.00 € 21.67

S ocia l Inclus ion & P a rticipa tion € 99.21 € 7.72 € 10.03 € 49.53 € 93.23

E duca tion € 11.93 € 0.00 € 0.00 € 28.97 € 64.90

Transport (P riva te) € 252.55 € 0.00 € 0.00 € 0.00 € 0.00

Household E lectricity € 69.68 € 5.80 € 0.00 € 0.00 € 0.00

Home Hea ting € 74.02 € 0.00 € 0.00 € 0.00 € 0.00

P ersona l Cos ts € 0.78 € 0.86 € 0.69 € 0.69 € 0.69

Home Insurance € 18.38 € 0.00 € 0.00 € 0.00 € 0.00

Car Insurance € 28.21 € 0.00 € 0.00 € 0.00 € 0.00

S aving s & Contingencies € 59.52 € 21.67 € 21.67 € 21.67 € 21.67

Tota l before deductions € 1,066.75 € 372.49 € 194.99 € 334.88 € 547.40LE S S child benefit € 0.00 -€ 130.00 -€ 130.00 -€ 130.00 -€ 130.00

Total monthly set costs 1,066.75€ 242.49€ 64.99€ 204.88€ 417.40€

Child Age Groups

41

Table 5. Two adult household, one or more children, no vehicle

TWO ADULT HOUS E HOLD NO CAR NE E DE DMar 2013


Tota l before deductions € 1,305.77 € 372.49 € 176.09 € 307.13 € 509.74 € 9.83 € 9.27LE S S child benefit € 0.00 -€ 130.00 -€ 130.00 -€ 130.00 -€ 130.00 € 0.00 -€ 10.00Total set costs € 1,305.77 € 242.49 € 46.09 € 177.13 € 379.74 € 9.83 -€ 0.73




Table 5 Two adult household, one or more children, no vehicle


Couple Infant P re-S chool P rimary S econdaryF ood € 278.75 € 133.30 € 72.14 € 119.70 € 162.42Clothing € 67.47 € 72.79 € 22.10 € 30.23 € 55.05P ersona l Care € 65.56 € 46.98 € 6.16 € 11.86 € 36.80Hea lth € 44.81 € 35.69 € 18.70 € 18.45 € 24.30Household Goods € 69.93 € 47.69 € 12.18 € 13.62 € 16.59Household S ervices € 36.17 € 0.00 € 0.00 € 0.00 € 0.00Communica tions € 65.00 € 0.00 € 0.00 € 0.00 € 21.67S ocia l Inclus ion & P a rticipa tion € 157.86 € 7.72 € 10.03 € 49.53 € 93.23E duca tion € 11.93 € 0.00 € 0.00 € 28.97 € 64.90Transport (P ublic) € 225.96 € 0.00 € 12.42 € 12.42 € 12.42Household E lectricity € 90.97 € 5.80 € 0.00 € 0.00 € 0.00Home Hea ting € 92.65 € 0.00 € 0.00 € 0.00 € 0.00P ersona l Cos ts € 1.56 € 0.86 € 0.69 € 0.69 € 0.69Home Insurance € 18.38 € 0.00 € 0.00 € 0.00 € 0.00Car Insurance € 0.00 € 0.00 € 0.00 € 0.00 € 0.00S aving s & Contingencies € 78.77 € 21.67 € 21.67 € 21.67 € 21.67Tota l before deductions € 1,305.77 € 372.49 € 176.09 € 307.13 € 509.74LE S S child benefit € 0.00 -€ 130.00 -€ 130.00 -€ 130.00 -€ 130.00


Child Age Groups

42

Table 6. Two adult household, one or more children, vehicle

TWO ADULT HOUS E HOLD P RIVATE CAR NE E DE DMar 2013




Total set costs € 1,359.67 € 242.49 € 33.67 € 164.71 € 367.32 € 9.83 € 42.23




Table 6 Two adult household, one or more children, vehicle


Couple Infant P re-S chool P rimary S econdaryF ood € 278.75 € 133.30 € 72.14 € 119.70 € 162.42Clothing € 67.47 € 72.79 € 22.10 € 30.23 € 55.05P ersona l Care € 65.56 € 46.98 € 6.16 € 11.86 € 36.80Hea lth € 44.81 € 35.69 € 18.70 € 18.45 € 24.30Household Goods € 69.93 € 47.69 € 12.18 € 13.62 € 16.59Household S ervices € 36.17 € 0.00 € 0.00 € 0.00 € 0.00Communica tions € 65.00 € 0.00 € 0.00 € 0.00 € 21.67S ocia l Inclus ion & P a rticipa tion € 157.86 € 7.72 € 10.03 € 49.53 € 93.23E duca tion € 11.93 € 0.00 € 0.00 € 28.97 € 64.90Transport (P riva te) € 252.75 € 0.00 € 0.00 € 0.00 € 0.00Household E lectricity € 90.97 € 5.80 € 0.00 € 0.00 € 0.00Home Hea ting € 92.65 € 0.00 € 0.00 € 0.00 € 0.00P ersona l Cos ts € 1.56 € 0.86 € 0.69 € 0.69 € 0.69Home Insurance € 18.38 € 0.00 € 0.00 € 0.00 € 0.00Car Insurance € 27.10 € 0.00 € 0.00 € 0.00 € 0.00S aving s & Contingencies € 78.77 € 21.67 € 21.67 € 21.67 € 21.67Tota l before deductions € 1,359.67 € 372.49 € 163.67 € 294.71 € 497.32LE S S child benefit € 0.00 -€ 130.00 -€ 130.00 -€ 130.00 -€ 130.00


Child Age Groups

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Table 7. Two adult household, no vehicle

TWO ADULT HOUS E HOLD (NO CHILDRE N)Mar 2013

MONTHLY

Tota l set cos ts € 1,438.01

OTHER COSTSHous ingS pecia l circumstances


NO CAR NE E DE D

Table 7 Two adult household, no vehicle

F ood € 363.55

Clothing € 67.75


Hea lth € 49.91






Transport (P ublic) € 272.59








SET COSTS BREAKDOWN - FOR INFORMATIONAL PURPOSES ONLY:

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Table 8. Two adult household, vehicle TWO ADULT HOUS E HOLD (NO CHILDRE N)Mar 2013

MONTHLY

Tota l set cos ts € 1,431.58

OTHER COSTSHous ingS pecia l circumstances


CAR NE E DE D

Table 8 Two adult household, vehicle

F ood € 363.55

Clothing € 67.75


Hea lth € 49.91






Transport (P riva te) € 240.34









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10. Examples illustrating the application of reasonable living expenses

Example 1 – Ger – DRN

This example is designed to show how these guidelines link into the assessment of a debtor’s

eligibility for a DRN.

Ger is a 23 year old single male living alone in a city centre flat which he rents privately at a

cost of €600 a month. He doesn’t have or need a car. He is in full-time employment and his

take home pay is €1,550 a month. He has credit card debt of €11,000 and owes a credit

union another €6,000. He is finding it impossible to make the monthly payments on top of

his rent and all his other bills and wonders if he can get a DRN.

Ger should look at the eligibility criteria on the ISI website before visiting an AI. He can get a

list of AIs from the ISI website. Amongst other matters, the AI will check whether Ger meets

the eligibility criteria of having €60 or less disposable income each month.

The AI will use Table 1 (one adult household, no vehicle) which shows the monthly set costs

to be €900.08. To this is added his rent of €600 a month, having been assessed as

reasonable by the AI in accordance with the criteria on assessing housing costs set out on

page 12, making his reasonable living expenses €1,500.08.

The AI will make the following calculation:

Monthly income after income tax and social insurance contributions €1,550.00

Total set costs €900.08

Rent / mortgage €600.00

Childcare None

Special circumstances None

Reasonable living expenses €1,500.08 €1,500.08

Net disposable income €49.92

Since the net disposable income is less than €60 a month, the eligibility criteria in respect of

net disposable income is satisfied. The AI will assess whether he meets all of the other

eligibility criteria. If he does the AI will advise him of his options which may result in Ger

requesting the AI to assist him in making an application for a DRN.

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Example 2 – Emma – DSA

This example is designed to show how the application of these guidelines may demonstrate that a

debtor is ineligible to apply for a DRN and that, in such circumstances, a DSA may remain a

possibility for the insolvent debtor.

Emma is self-employed on a part-time basis as an insurance broker and earns €2,500 after tax a

month. She is a single mother with a daughter aged five who needs paid childcare on the days

Emma works. Emma rents privately and pays €300 a month as rent. She needs a car to transport

her daughter to school and to get to her job. She has a 2002 Fiat Punto worth €1,800 which she

owns outright. Fees for part-time childcare come to €500 a month. Emma has a personal loan

from her bank with an outstanding balance of €18,200. She is finding it difficult to make the

repayments and seeks advice.

Emma should look at the eligibility criteria for DRNs and DSAs on the ISI website before proceeding.

From the information on the website she can calculate her reasonable living expenses and work out

her net disposable income. As this does not meet the eligibility criteria for a DRN, Emma will need

to contact a PIP rather than an AI. Emma should obtain the details of registered PIPs from the ISI

website and contact one of them.

The PIP will use Table 4 (One adult household, one or more children, vehicle), which shows the

monthly set costs to be €1,271.63. This is made up of €1,066.75 for the adult and €204.88 for the

child. To this is added €500 a month being the cost of part-time childcare and the €300 a month

Emma pays in rent which the PIP has assessed as reasonable having regard to the criteria on pages

11-12. Emma’s reasonable living expenses come to €2,071.63.

The PIP will make the following calculation:

Monthly income after income tax and social insurance contributions* €2,500.00

Total set costs €1,271.63


Childcare €500.00



Net disposable income €428.37 * Child benefit payments are not included.

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Emma’s net disposable income at €428.37 a month is above the €60 limit. On this basis, she is not

eligible for a DRN but a DSA may be a possibility.

The PIP, in formulating a proposal to Emma’s creditors, might suggest that all of her income in

excess of the base level of reasonable living expenses be paid to creditors for year 1. For year 2, as

an incentive to keep with the arrangement, the PIP might put forward that Emma retain an

additional €25 a month with similar increases in subsequent years.

It will be for creditors to decide if this is acceptable during negotiations with the PIP and ultimately

at the point in time that they are asked to vote on the proposal.

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Example 3 – Don and Aoife – DRN

This example is designed to show how these guidelines are applied in the case of a couple where

only one of them is in receipt of income and bears all of the reasonable living expenses of the

household.

Don and Aoife are a married couple in their 20s living in accommodation provided by their local

authority for which they pay €65 a month. Neither is employed at the moment but Don is seeking

work and receiving jobseeker’s allowance. They do not have a car. They have two children, aged 3

and 8. Don is in arrears on a personal loan he took out with a bank two years ago when he was

working. The outstanding balance is just over €12,000. He cannot see where he can get the money

to pay off his creditors and thinks that a DRN might be an answer.

Don should look at the eligibility criteria on the ISI website before visiting an AI. He can get a list of

AIs from the ISI website. Amongst other matters, the AI will check whether Don meets the

eligibility criteria of having €60 or less net disposable income each month.

Don receives €188 in jobseeker’s allowance plus a payment of €124.80 in respect of Aoife who is a Qualified Adult. In addition, he receives a total of €59.60 a week in Qualified Child Increase

payments. Child benefit payments are not included. His total reckonable income comes to €372.40

a week or €1,619.32 a month.

Using table 5 (Two-Parent Household, one or more children, no vehicle) the AI will take set costs of €1,305.77 for the two adults and add €223.22 for the two children (€46.09 for a pre-school child

and €177.13 for a child of primary school age). To this is added €65 for their housing costs, having

been assessed as reasonable by the AI in accordance with the criteria on assessing housing costs set

out on page 12, giving reasonable living expenses of €1,593.99 a month for the household.


Monthly income after income tax and social insurance contributions* €1,619.32



Childcare None




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Normally, with two adults in the household, the reasonable living expenses are assumed to be split

evenly between them both. In this case, Don explains to the AI that he receives the only income

coming into the household and that he pays all the household expenses in full. Here, the

reasonable living expenses are allowed in full against his income.

For Don’s application, this means income of €1,619.32 less reasonable living expenses of €1,593.99,

giving a net disposable income of €25.33. This is less than €60 and so satisfies the test for net

disposable income. The AI will assess whether he meets all of the other eligibility criteria. If he

does the AI will advise him of his options which may result in Don requesting the AI to assist him in

making an application for a DRN.

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Example 4 – Mary and Michael – DRN

This example is designed to show how these guidelines are applied in the case of a couple where

there is more than one income and the reasonable living expenses of the household are split

between the couple.

Mary and Michael are a married couple in their 20s living in accommodation provided by the local

authority for which they pay €100 a month. Neither is employed at the moment but both are

seeking work and both are in receipt of jobseeker’s allowance. They do not have a car. They have

two children, aged 3 and 8. Mary has a credit card with an outstanding balance of €14,000. She

cannot see where she can get the money to pay off her creditors and thinks that a DRN might be an

answer.

Mary should look at the eligibility criteria on the ISI website before visiting an AI. She can get a list

of AIs from the ISI website. Amongst other matters, the AI will check to see if Mary meets the

eligibility criteria of having €60 or less net disposable income each month.

Mary receives €188 a week in jobseeker’s allowance. Her total reckonable income comes to €817.49 a month.

Using Table 5 (Two adult household, one or more children, no vehicle) the total set costs for the

household are €1,528.99 a month. This is made up of €1,305.77 for the two adults, €223.22 for the two children (€177.13 for a child of primary school and €46.09 for a child of pre-school age). To this

is added €100 for their housing costs, these having been assessed as reasonable by the AI in

accordance with the criteria on assessing housing costs set out on page 12. The total reasonable living expenses for the household are €1,628.99.

The usual presumption is that where there are two adults in the household the reasonable living

expenses are split evenly between them. This presumption will be applied here since Michael also

receives a jobseeker’s allowance payment. The reasonable living expenses assigned against Mary’s

income are thus half those of the household or €814.50.

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Monthly income after income tax and social insurance contributions* €817.49



Childcare None


Reasonable living expenses for the household €1,628.99

Reasonable living expenses (half for Mary) €814.50


For Mary’s application, this means income of €817.49 less reasonable living expenses of €814.50,

giving a net disposable income of €2.99. This is less than €60 and so satisfies the test for net disposable income. The AI will assess whether she meets all of the other eligibility criteria. If she

does the AI will advise her of her options which may result in Mary requesting the AI to assist her in

making an application for a DRN.

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Example 5 – Conor – PIA

This example is designed to show how these guidelines are applied in the case of a debtor who is

living beyond his or her means.

Conor is employed as an accountant and takes home €4,000 a month. He is single and lives in an

apartment which he bought in 2006 for €280,000 but which is now valued at about €160,000. The

outstanding mortgage balance is now €258,000 and the monthly payment is €1,200. He also has a

mortgage with an outstanding balance of €210,000 on a buy-to-let property which is unoccupied.

Conor has a personal loan from a bank with an outstanding balance of €39,000 and outstanding

balances totalling €22,000 on three credit cards. He owns outright a car worth €25,000. His

discretionary spending leaves him little money to pay his debts. He is hoping that a PIA or DSA can

solve his financial problems.

Conor should look at the information on both DSAs and PIAs available on the ISI website before

visiting a PIP. He can get a list of PIPs from the ISI website.

Using Table 2 (One adult household, vehicle), the total set costs for the household are €1,029.83 a

month. To this is added the €1,200 which Conor pays in mortgage payments which the PIP has

assessed as reasonable having regard to the criteria on pages 11-12. Conor’s reasonable living

expenses come to €2,229.83.

The PIP will make the following calculation:

Monthly income after income tax and social insurance contributions €4,000.00


Mortgage – reduced payment under the proposal €1,200.00

Childcare None



Net disposable income €1,770.17

For Conor’s application, this means income of €4,000.00 less reasonable living expenses of

€2,229.83, giving a net disposable income of €1,770.17 a month.

53

Conor is living beyond his means. The PIP will likely advise Conor that he will need to consider

reducing his spending so as to enable the PIP to put forward a proposal more likely to achieve

creditor support while keeping Conor in his home. The PIP, in formulating a proposal to Conor’s

creditors, will consider Conor’s need for a car and may suggest that he should sell his car and either

not replace it at all or replace it with a less expensive model.

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11. Appendix A – Section 23 of the Personal Insolvency Act 2012

Guidelines on reasonable standard of living, reasonable living expenses for debtors.

23.—(1) The Insolvency Service shall, for the purposes of sections 26, 65(4) and 99(4) and section 85D (as inserted by section 157) of the Bankruptcy Act 1988, prepare and issue guidelines as to what constitutes a reasonable standard of living and reasonable living expenses.

(2) Before issuing guidelines under subsection (1), the Insolvency Service shall consult with the Minister, the Minister for Finance, the Minister for Social Protection and such other persons or bodies as the Insolvency Service considers appropriate or as the Minister may direct.

(3) In preparing guidelines to be issued under subsection (1), the Insolvency Service shall have regard to— (a) such measures and indicators of poverty set out in Government policy

publications on poverty and social inclusion as the Insolvency Service considers appropriate,

(b) such official statistics (within the meaning of the Statistics Act 1993) and surveys relating to household income and expenditure published by the Central Statistics Office as the Insolvency Service considers appropriate,

(c) the Consumer Price Index (All Items) published by the Central Statistics Office or any equivalent index published from time to time by that Office,

(d) such other information as the Insolvency Service considers appropriate for the performance of its functions under this section,

(e) differences in the size and composition of households, and the differing needs of persons, having regard to matters such as their age, health and whether they have a physical, sensory, mental health or intellectual disability, and

(f) the need to facilitate the social inclusion of debtors and their dependants, and their active participation in economic activity in the State.

(4) Guidelines issued under subsection (1) may provide examples of

(a) expenses that may be allowed as reasonable living expenses,

and

(b) expenses that may not be allowed as reasonable living expenses.

(5) The Insolvency Service shall make guidelines issued under subsection (1) available to members of the public on its website.

(6) Subject to subsection (7), the Insolvency Service shall issue guidelines under subsection (1) at intervals of such length, not being more than one year, as it considers appropriate.

(7) Failure by the Insolvency Service to comply with subsection (6) shall not render invalid for the purposes of this Act the guidelines most recently issued by it under this section.

55

12. Glossary

AI Approved Intermediary

Bankruptcy payments order A Court order made under section 85D of the Bankruptcy Act 1988.

CSO Central Statistics Office

ECCE Early Childhood Care and Education

DRN Debt Relief Notice

DSA Debt Settlement Arrangement

ISI Insolvency Service of Ireland

ISI model A modified version of the consensual budgeting model originally

developed in Ireland by the Vincentian Partnership for Social

Justice.

PFS Prescribed Financial Statement

PIA Personal Insolvency Arrangement

PIP Personal Insolvency Practitioner

PRTB Private Residential Tenancies Board

PSRA Property Services Regulatory Authority

The Act Personal Insolvency Act 2012

VPSJ Vincentian Partnership for Social Justice

VPSJ model A consensual budgeting model originally developed in Ireland by

the Vincentian Partnership for Social Justice

http://www.citizensinformation.ie/en/education/pre_school_education_and_childcare/early_childhood_care_and_education_scheme.html

56

Insolvency Service of Ireland Phoenix House Conyngham Road Dublin 8 Phone: 0761 064 200

Email: [email protected]

Website: www.isi.gov.ie

mailto:[email protected]